Cryptocurrency: The Future or Fall of the Economy?
With Cryptocurrency hitting an all-time high amidst the Covid-19 pandemic, investors are the picture of glee and joy as they see their hard-earned money hit almost triple of their initially invested amount. But while this is a good thing for investors, economic analysts predict that cryptocurrency assets are the very thing that can break the global financial stability of the economy.
In their fearless forecast, the Financial Stability Board (FSB) said that the overlap of the crypto assets with traditional financial systems can cause significant disturbance to the global economy. What’s worse is that it can even break the global financial stability that we have tried so hard to attain for a long time.
All About the FSB
The FSB is an international financial institution that monitors and makes recommendations about the global financial system. Their main goal is to promote and encourage international financial stability through proper coordination with the national financial authorities and international standard-setting bodies. The FSB hopes to develop national financial authorities and international standard-setting bodies with these stakeholders. The FSB’s framework consists of three groups, namely:
The Standing Committee on Assessment of Vulnerabilities (SCAV) is the FSB’s main mechanism for identifying and assessing risks in the financial system.
The Standing Committee on Supervisory and Regulatory Cooperation (SRC) is charged with undertaking further supervisory analysis or framing a regulatory or supervisory policy response to a material vulnerability identified by SCAV.
The Standing Committee on Standards Implementation (SCSI) is responsible for monitoring the implementation of agreed FSB policy initiatives and international standards.
Cryptocurrency: The Fall of the Global Economy?
FSB’s stand on cryptocurrency and how it impacts the economy is quite bleak. They acknowledge that the use of cryptocurrency is widely varied across jurisdictions, which makes it more complicated in its economic impact. This makes cryptocurrency prone to financial stability risks that can quickly boom. This is also why FCB cautions the US Congress to ensure proper legislation that can potentially control the use and trade of cryptocurrency.
What’s more, financial institutions are cooking up more ways to market cryptocurrency and make this digital currency more accessible to the public. While this may be a good idea for potential investors and a way to make financial institutions have a wider portfolio, this can be a tipping point for the global economy’s stability. The prevalence of more complex investment strategies will only make things more unstable in the global financial market.
With that in mind, the growth and scalability of cryptocurrency may mean the fall of the global economy.
The trend for cryptocurrency has seen an upward trend since its birth in 2009. Crypto asset market capitalization grew 3.5 times in 2021 and is now valued at over $40,000 for one bitcoin. While crypto assets still remain a small portion of the overall financial system, the growth rate of crypto assets can be likened to how subprime mortgage exposure significantly impacted 2007 to 2008.